Question about an Endowment Policy

JazzG

A family member has an endowment policy with Aegon (previous Scottish Equitable) and it is due to mature next year. However they are looking to sell their house in the next few months. Is the endowment policy linked to that house and the mortgage on it? So can they still cash it in as planned towards the end of the year or would they have to cash in early? They have re-mortgaged with a different lender since their original Endowment policy was taken out. They aren't in negative equity either so the money they get from selling will pay off the mortgage. They would rather not surrender early as it is on track to get the full amount.

Sorry for the silly question, don't have a clue myself and a quick Google didn't reveal much so thought I'd ask here

Thanks for your help

holly_hobby

The low cost endowment policy is traditionally used in support of interest only borrowings (and is a investment vechile with combined life cover upto the target amount). It is a transferrable repayment vehicle between the mortgages the life assured may hold (up to the target policy value of course), and between lenders as their mortgage providers change along the policy term.

Which means in your friends case that their current policy should be used to redeem or partially redeem the os mortgage when the policy matures.

In days gone by the lenders actually had the policy assigned to them, which is no longer a requirement, which is possibly where your friends confusion as to if it has to be used to pay off their current mge, and is not transferrable to new lenders has come from.

Aside from that, the good news that it is on target at maturity to meet the target amount too - but your friend should be aware that the predicted growth rates used to produce EMVs are prescribed by the FSA for use across all providers so the reality at maturity may be a little different.

To that end it may not be a bad idea that if they have some savings to keep themto one side, until the policy matures and the actual maturity sum and how that affects mge repayment is known.

Hope this helps

Holly

JazzG

Sorry I'm a bit confused. Basically they have agreed to sell their house and they are just going through formalities at the moment and will looking to exchange contracts soon before the completion.

The Endowment doesn't mature until next year so does that mean if house is sold in the next few months the plan has to be redeemed along with it? Like I mentioned earlier they don't need to redeem it as their selling price will pay off all their current mortgage.

holly_hobby

No they don't need to surrender the endowment.

Holly

JazzG

Thanks for the help